Lucrative, closed-door dealings between two of the world’s most powerful tech companies are under scrutiny at the Google antitrust trial in Washington, as the first of two senior Apple executives began testifying.
Apple AI chief John Giannandrea, who formerly headed Google’s search business until 2018, appeared briefly on the stand late Thursday and will continue testifying on Friday. He will be followed by Eduardo Cue, Apple’s services chief, who previously led Apple’s negotiations to update their contract with Google. Apple unsuccessfully fought to keep them off the stand.
The pair of tech giants have remained silent about the estimated $19 billion that Google pays Apple per year to ensure its search engine remains the default on iPhones and other Apple devices — a deal that spans 18 years. Both companies have tried to keep details of the transactions out of the public eye, with filings in the case heavily redacted.
Nevertheless, the public aspects of the case are shedding new light on how a once-fierce rivalry between Apple and Google over smartphones — what Steve Jobs once referred to as a “thermonuclear war” — has turned into a peaceful partnership that industry experts describe as a duopoly.
“Our vision is that we work as if we are one company,” a senior Apple employee wrote to a Google counterpart in a 2018 email, as cited in the Justice Department complaint.
These deals ensure that almost all smartphones sold in the United States, both iPhones and Android devices, come with Google search pre-installed front and center. The issue at hand is whether this agreement is monopolistic and excludes Google’s competitors from automatically accessing Apple’s billions of users.
“It’s playing both sides of the street,” said Justice Department attorney Kenneth Dintzer in his opening argument last week, referring to the contracts Google used to secure its search engine as the default.
In a blog post published prior to the trial, Google president of global affairs Kent Walker stated that the Justice Department’s lawsuit is “deeply flawed” and that the deal with Apple does not prevent consumers from using other search engines if they prefer.
“Making it easier for people to get the products they want benefits consumers and is supported by American antitrust law,” he wrote. “In sum, people don’t use Google because they have to — they use it because they want to.”
Justice Department lawyers clashed with Apple at the end of the day over which topics could be discussed in open session on Friday. Prosecutors requested that Judge Amit Mehta allow them to question Giannandrea on the record about documents related to Apple’s search capabilities and internal Apple documents analyzing the search quality of Google and Microsoft’s search engine, Bing. An attorney for Apple disagreed, stating that those “general subjects” were considered confidential by Apple.
During Giannandrea’s 10 minutes of questioning on Thursday, Dintzer pressed him to acknowledge that large sums of money were involved in their deal with Google, even if they couldn’t specify the numbers.
“Google pays Apple billions,” Dintzer said.
“I think that’s generally true,” Giannandrea responded.
Dintzer also asked Giannandrea about a new feature in iOS 17, Apple’s latest mobile operating system released on Monday, that allows users to choose different default search engines for private and regular browsing. This move could diminish Google’s power over the iPhone, as it makes it easier to use multiple search engines.
Prosecutors are expected to grill Giannandrea and Cue about the Apple-Google agreements, seeking evidence that Google utilized its monopoly power to acquire a 90 percent market share in general search, dictate terms, and prevent Apple from experimenting with other search engines. Google is expected to try to obtain evidence from the executives that Apple freely chose Google search simply because it was the best product.
Apple declined to comment.
This case marks the first time in nearly two decades that the Justice Department is taking a major tech company to court on antitrust charges. The decision could have wide-ranging effects on the high-tech landscape for the next decade and beyond, if it curbs Google’s reach amid an industry scramble for emerging AI technologies.
Judge Mehta will consider legal questions that are both intricate and technical. Being a monopoly is not illegal, but using that power to stifle competition is. The Justice Department argues that Google strong-armed Apple and other smartphone manufacturers into these deals. “The exclusive default was not Apple’s choice,” Dintzer told the court last week, referring to Apple’s initial interest in also working with Yahoo before Google demanded exclusivity.
Rebecca Haw Allensworth, a Vanderbilt antitrust law professor, said Apple’s testimony will hopefully clarify the intent behind Google’s payments: Was it a legitimate business deal, or a scheme to exclude competition?
“Google is paying billions of dollars to Apple to have that privileged status,” she said. “Any competitor to Google would also want access.”
Equity research firm Sanford Bernstein estimates that Google will pay Apple between $18 billion and $19 billion this year for default search status, an amount greater than the market capitalization of Best Buy or the GDP of Mongolia, and nearly 5 percent of Apple’s projected 2022 revenue.
Neil Shah, vice president of research at Counterpoint Research, noted that while Apple has 52 percent of the overall U.S. smartphone market, it commands a whopping 80 percent of the premium smartphone market. Google is paying to have its ads in front of these high-end users who use iPhones, and it is splitting the profits with Apple.
“These ‘premium eyeballs’ that Apple has access to are very lucrative but difficult to target for advertising companies like Google due to Apple’s walled garden,” he said.
Apple has been reluctant to discuss this arrangement in public.
“We actually went back and looked at earnings calls in the past, and Apple never once mentioned this relationship,” Bernstein tech analyst Toni Sacconaghi told investors when the Justice Department filed the lawsuit in 2020. “In the previous 10 years, Apple had actually never talked about this.”
Apple’s attempts to quash subpoenas seeking executive testimony ahead of the trial were unsuccessful. The company claimed that it, as a third party in the case, has faced “uncharacteristically overbroad and burdensome demands throughout this case.”
According to Apple, it has provided the Justice Department with over 125,000 documents and over 21.5 hours of executive depositions. The information, the company said in court filings, reflects its “most sensitive internal commercial deliberations.”
Apple’s vice president of corporate development, Adrian Perica, was also deposed, but he is not expected to appear in person.
As for Google’s deal with Apple, Mehta would have the authority to change the terms or even scrap it if he finds that Google acted illegally through it. When the European Union faced a similar case against Google, it ordered devices to have a “choice screen” upon initial setup so that consumers could choose which search engine they preferred.
In his opening statement last week, Justice Department attorney Dintzer cited an email that a Google executive sent internally in 2007 to recap a meeting with his Apple counterpart.
“I then told him we have two options,” wrote the Google executive Jeff Shardell. “1) No default placement — no revenue share on Safari/Windows. 2) Yes default placement — we will share in revenue under the current contract.”
Dintzer argued that the email demonstrated that Google was the one calling the shots.
“This is not a negotiation, Your Honor,” Dintzer told Mehta. “This is Google saying, ‘Take it or leave it.’”
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